A business plan is a blueprint of your business containing objectives, business strategy, sales, marketing, and financial forecasts. If you seek external funding from investors, no matter the size of your business, it is important to show them a business plan because, without one, you may not secure the necessary funds.
Put yourself in the shoes of an investor. Will you invest your money in a business without knowing anything about the business? Your answer is most likely no, and the rest of this write up will explain to you why business plans are important to investors.
Investors want to know the financial performance of your business before investing in it.
Every investor wants a return on risks taken, so if your business plan explains an attractive financial performance, you will most likely get funds from venture capitalists. For instance, investors will like to know about your market share, your management team so that they can analyse whether or not your business is worth investing in. So, suppose from your business plan, the potential investor does not find an attractive performance. In that case, they will likely not invest in it but will invest if your business plan proposes an attractive financial performance.
Investors also want to know your business unique selling point before investing in your business. Investors want to invest in businesses that are different from those out there already because the difference brings returns. Uniqueness is what creates a competitive advantage for every business. For instance, there is a reason why people prefer to purchase an iPhone rather than a Samsung even though a Samsung is more expensive. That’s because the iPhone has a unique selling point, one of which is the camera quality which is important with social media.
Investors are eager to know your business model before investing in your business. Potential investors analyse your business model to understand how your business operates and how you plan on remaining profitable amidst competition. It explains to investors how you plan on creating value for your customers.
For people who have been in business, investors will want to know of the entrepreneur’s background and experience in the business. For entrepreneurs with little to no experience, the business plan should show extensive research to cover their inexperience in an industry. Investors do not want to invest in businesses run by entrepreneurs with no experience or evidence of research. It is just like voluntarily walking into a lion’s den that almost no one will willfully do. Your business plan should show passion and commitment so that investors are confident about investing in your business. Furthermore, investor fit is especially vital for angel investors as opposed to venture capitalists. Angel investors are more hands-on about their investment decisions; therefore, they require having chemistry with the entrepreneur they decide to invest with. For instance, Tim Ferris, an angel investor, connects better with entrepreneurs that have done a high-stress project even when failure is constant.
In summary, if you want external funding, you should have a business plan to attract funding. Investors want to know about financial performance, unique selling point, business models and background and experience before investing.
Several of our clients have used the business plans we created for them to raise funds from investors. We have found that most investors are interested in unique business models in established industries with promising financial models and projections.
If you would like us to do the same for you, send us an email at hello@halisiconsults.com.